Bertelsmann Grows Revenues and Operating Profits in Fiscal Year 2005

• Acquisitions and organic growth increase revenues to €17.9 billion
• Operating EBIT rises by nearly 13 percent to €1.6 billion
• ROS improves to 9.0 percent
• Strategic investments strengthen core businesses
• Number of employees rises significantly in 2005
• − approx. 1,000 new jobs in Germany
• Company expects further growth in revenue and profits

Berlin, March 22, 2006 – The international media company, Bertelsmann, increased its revenues and further improved its profitability in 2005. Several strategic acquisitions enhanced Bertelsmann’s market positions in key segments. The company announced on Wednesday in Berlin that consolidated revenues grew from €17.0 billion in 2004 to €17.9 billion in 2005. Acquisitions and organic growth each accounted for roughly half of this 5.1-percent increase. Operating EBIT rose by 12.7 percent to €1,610 million (2004: €1,429 million). Operating return on sales was 9.0 percent, reflecting a year-on-year improvement (2004: 8.4 percent). Consolidated net income was again high at €1,041 million, but remained below the previous year’s €1,172 million, which included significant one-time gains. The number of employees worldwide rose to 88,516 at the end of the year (2004: 76,266), due primarily to acquisitions and job creation. In Germany, the number of employees grew by 4,767, of which 1,000 were newly created jobs.

The RTL Group, Arvato and Gruner + Jahr divisions were the major contributors to Operating EBIT in 2005. All corporate divisions contributed to the positive development in Operating EBIT by improving their results year on year.

Gunter Thielen, Chairman and Chief Executive Officer, said: “Bertelsmann enjoyed a fiscal year that was as forward-moving as it was successful: In 2005, we resolutely seized opportunities for acquisitions and fundamentally strengthened core businesses such as our TV division. In a difficult market environment, we have more than doubled our operating profit since 2002, and achieved record results in 2005. All of our corporate divisions command leading market positions, indicating that we are on the right strategic path. We will build on this strong foundation to step up our investments in new growth markets and in emerging digital-media businesses.“

A number of strategic measures in key business segments were realized in fiscal year 2005. They include the acquisition of a majority stake in Motor Presse Stuttgart magazine publishers, the specialty DVD retailer Columbia House in the U.S., FAZ’s DVA, Kösel and Manesse imprints in Germany and the European information-services provider Infoscore, as well as the formation of the Prinovis gravure joint venture. Bertelsmann exercises business and management control largely by aspiring to sole ownership of its businesses. In 2005, this strategy was reflected in moves to strengthen the group’s ownership position – in RTL Group in particular - i.e. the acquisition of RTL Group shares formerly owned by the WAZ group (Westdeutsche Allgemeine Zeitung) and of the remaining shares in the British TV channel, Five.

Consolidated revenues for 2005 were €17.9 billion, a significant year-on-year increase of 5.1 percent (2004: €17.0 billion). Apart from improved organic growth of 2.3 percent (2004: 1.9 percent), major contributors to this development were the investments made during fiscal year 2005. All of them except Five have been consolidated since July 1, 2005. Overall, portfolio adjustments and other effects improved revenues by 2.5 percent (2004: 1.7 percent), while exchange-rate movements increased revenues by 0.3 percent (2004: minus 2.3 percent).

The “GAIN” growth and innovation initiative launched in late 2003 has generated numerous business ideas, many of which are already contributing to income. Examples include the launch of the download platform “GNAB,” the introduction of biweekly TV guides in France, and Arvato’s partial assumption of administration tasks for the East Riding council in Great Britain.

Bertelsmann’s Operating EBIT increased by 12.7 percent to €1,610 million in 2005 (2004: €1,429 million). Taking into account the financial result and taxes, consolidated net income at €1,041 million was slightly below the previous year’s level (€1,172 million). A steep increase in the operating result nearly offset the year-on-year reduction in the positive effect of special items. At €61 million, the total effect of special items on EBIT in 2005 was much lower than in 2004 (€318 million).

All internal financial targets were met 2005 despite large investments. Economic debt amounted to €3,931 million in 2005 (2004: €2,632 million), again reflecting the intensified investment activity.

“After a year that saw the second-highest investments in the company’s history, Bertelsmann can proceed with newfound, sustained strength, and on a sound financial basis. Thanks to our company’s considerably improved profitability, we will continue to have average annual financial scope of €1 billion, above and beyond ongoing investments, to strengthen our businesses,” said Bertelsmann’s Chief Financial Officer Thomas Rabe.

Based on these positive developments in the operating result, Bertelsmann will again pay out profit participation to a majority of employees in Germany for the 2005 fiscal year, as in previous years.

In May 2006, 15 percent on the par value will be disbursed on Bertelsmann’s 2001 Profit Participation Certificate in accordance with the terms and conditions governing the PPCs. The payout on “old” 1992 Profit Participation Certificates will be 6.97 percent  (2004: 8.42 percent).

Bertelsmann AG’s management is confident about the company’s prospects for 2006: “We expect continued growth in revenues and profit – both at the group level and in each of our corporate divisions,” declared Gunter Thielen.

Other Reference Figures

In sum, the special items that are not included in Operating EBIT but which influence net income, were positive in 2005 (€61 million). Positive items included Gruner + Jahr’s sale of the U.S. magazine publishing operations (€91 million), a merger gain in connection with the establishment of Prinovis (€72 million) and a merger gain from Arvato’s acquisition of the majority stake in Infoscore (€52 million). These positive effects were largely offset by restructuring and integration charges of minus €185 million (minus €105 million at BMG, minus €64 million at Direct Group, and minus €16 million at RTL Group).

The year was characterized by high investment activity. Investments in property, plant and equipment, intangible assets and financial assets including acquisition price payments totaled €2,565 million for the year (2004: €863 million).

At €1,791 million, net cash from operating activities in 2005 was nearly on par with 2004 (€1,829 million). The acquisitions made during the year resulted in a significant net cash outflow totaling minus €2,129 million in 2005 (2004: minus €497 million)

At €22.9 billion, total assets are roughly €1.9 billion above the previous year’s amount
(€21.0 billion). The year-on-year increase is due primarily to the full consolidation of channel Five in the U.K., the magazine publisher Motor Presse Stuttgart, the Columbia House DVD club, and Infoscore. At 40.0 percent, the equity ratio exceeded the 25-percent target and was only slightly below the previous year’s ratio of 41.6 percent.

At the end of the 2005 fiscal year, the Bertelsmann group had 88,516 employees worldwide (2004: 76,266). This increase of 12,250 is the result of organic growth, the establishment of the Prinovis gravure company, and acquisitions.

The Corporate Divisions

RTL Group, Europe’s leading television, radio and TV production group, delivered a continued positive performance in 2005. The company increased its revenues by 4.8 percent to €5.1 billion (2004: €4.9 billion), and its operating result by 13.2 percent to €756 million (2004: €668 million). Return on sales improved to 14.8 percent (2004: 13.7 percent).

In the year under review, RTL Group profited from its broad business presence in the European TV markets. Overall, RTL Group’s viewer and listener market shares were on par with the high levels of the previous year. RTL Group systematically continued on its strategic course: it strengthened its established families of channels in the core markets, taking into consideration their increasing digitization, advanced its geographic expansion, and continued building up its diversification ventures. The complete takeover of Five added strategic weight to the British TV market. The significant increase of stake in Portugal’s Media Capital enhances the Group’s presence in the Southern European markets. RTL Group improved its market position in Eastern Europe by acquiring a thirty-percent holding in the Russian channel Ren-TV. In Germany, the RTL Family of channels maintained its leading market position, holding revenues stable. Overall, results were slightly down due to an anemic market in the first half of 2005 and restructuring costs. In France, M6 showed positive development, scoring record viewer and advertising market shares. Five in the U.K. was able to increase its revenues and results considerably while Antena 3 in Spain also posted a hefty increase in results, having grown its market share.

Despite the ongoing flat international book retail marketplace, Random House worldwide increased both its sales and its profitability over the preceding year to overall record levels for the company. Revenues increased slightly by 2.1 percent to €1.83 billion (2004:
€1.79 billion), while the operating result grew to €166 million (2004: €140 million). Each of the company’s North American divisions was profitable. The London-based Random House UK Group posted the largest increases of any Random House division in revenues and profits. In North America, Random House had twenty-two #1 bestsellers on the national “New York Times” bestseller lists, among them the six-million-copy “The Broker”, by John Grisham, and led the industry for the seventh consecutive year in overall title placement.

Germany’s Verlagsgruppe Random House enhanced its market position by acquiring the FAZ imprints Deutsche Verlags-Anstalt, Kösel Verlag, and Manesse. Overall profitability improved considerably. Random House Mondadori in Spain and Latin America had a solidly profitable year. The Asian joint ventures Random House Kodansha (Japan) and Random House JoongAng (Korea) each continued their development through the growth of their hardcover and paperback publishing programs. Random House underscored its unique global status in trade book publishing with the formation of Random House India in July 2005, which will publish indigenous authors as well as distribute international titles. A new local publishing imprint, Umuzi, was established in South Africa.

Europe’s biggest magazine publisher Gruner + Jahr delivered favorable results in 2005. Following a phase of consolidation, the company returned to growth strategy and significantly improved its profitability in an advertising market that continues to be sluggish. Revenues were up by 7.6 percent to €2.6 billion (2004: €2.4 billion), boosted by the acquisition of the majority stake in Motor Presse Stuttgart and the establishment of the gravure joint venture, Prinovis. The sale of the U.S. magazine business had a negative impact. Adjusted for these portfolio effects, all of which became effective at July 1, 2005, revenues rose by 1.2 percent. Gruner + Jahr’s operating result grew considerably by 19.0 percent to €250 million (2004: €210 million). Return on sales improved to 9.5 percent (2004: 8.6 percent). The improvement was largely achieved in the core business. G+J again made steep investments in new titles which impacted results in 2005 but created a foundation for future growth. Since beginning its innovation campaign in 2003, Gruner + Jahr has launched forty-seven new titles, including sixteen in 2005 alone. By acquiring a majority stake in Motor Presse Stuttgart, G+J achieved strong market positions in new segments and entered ten new countries.

Gruner + Jahr increased its revenues and results year-on-year in the German magazine market. Successful cost management and improved ad sales during the second half of 2005 more than offset the higher development costs of new titles. The International Magazine and Newspaper divisions showed growth and a year-on-year improvement in their performance.

The Bertelsmann Music Group (BMG) faced difficult market conditions in 2005, as did the entire music industry. Revenues declined by 16.5 percent to €2.1 billion (2004: €2.5 billion) in a shrinking market. Another major contributor to this development was the change in how distribution revenues are reported at the Sony BMG Music Entertainment joint venture, in which BMG owns 50 percent: Instead of distribution revenues, only the handling fees are reported. Adjusted for this change, revenues declined by 7.2 percent. However, despite the revenue decline, BMG was able to raise its operating result by 9.3 percent to €177 million (2004: €162 million). The main contributor to this increase was cost savings achieved at the Sony BMG joint venture. However, depreciations of music rights – which were upgraded at the time of the merger pursuant to IFRS – diminished the result by €21 million. BMG’s financials include 50 percent of the results of Sony BMG, and the results of BMG Music Publishing, which is 100 percent owned by Bertelsmann.

In 2005, thirteen Sony BMG albums sold more than two million units worldwide and twenty-nine others sold more than a million units. Sony BMG also commands an outstanding position in the digital music business worldwide. Digital sales accounted for seven percent of total revenue. BMG Music Publishing, the world’s third-largest music publisher, had its most successful year to date, again generating a double-digit return on sales. In particular, growth was achieved in the Pop & Rock core business in its major markets – the U.S., U.K., and Germany.

The international media and communications services provider Arvato posted a successful performance in 2005. In a macroeconomic environment which was characterized by muted growth in Germany, the European core markets, and the U.S., Arvato significantly increased its revenues and operating result year-over-year. Revenues rose by 16.2 percent to
€4.4 billion (2004: €3.8 billion), which puts it above four billion euros for the first time in the company’s history. The rise in revenues is driven foremost by strong organic growth of
9.2 percent. Acquisitions and other portfolio effects were other significant growth factors. Operating results rose markedly by 10.0 percent to €341 million (2004: €310 million). The number of employees worldwide grew by over 8,000 over the course of the year, to more than 42,000.

The service businesses bundled in Arvato Services delivered a very positive performance, thanks in part to the acquisition of a majority stake in the Infoscore group. In the U.K., the company entered the market for public administration services. Arvato Print’s operations in Germany and beyond did well in a difficult market fraught with surplus capacity. The new gravure group Prinovis, began operations as a joint venture among Arvato, Gruner + Jahr, and the Axel Springer AG. In Treviglio, Italy, one of Europe’s most progressive state-of-the-art gravure printers took up production on schedule. The IT service provider, Arvato Systems, registered sustained growth and honed its profile in the external market.

After several years of revenue decline, Direct Group and its international club businesses returned to growth in 2005. Revenues rose sharply by 9.6 percent to €2.4 billion (2004:
€2.2 billion), due to acquisitions made during the year. Adjusted for portfolio and currency effects, revenues declined by 4.8 percent. The operating result was up considerably year-on-year to €53 million (2004: €32 million). Nearly all club businesses contributed to the improved result. The U.S. book club business showed the steepest year-on-year growth, having improved its results by over 70 percent. The Spanish book club was able to maintain its high level of profitability. In the German club business, the path for significantly improved results was readied with a restructuring program. Key functions of the club business were relocated to Berlin. Comprehensive cost-cutting measures were introduced at the U.K. club as well in order to reach breakeven in 2006.

In addition to tapping additional lines of business and establishing new club models, Direct Group further enhanced its position as Europe’s biggest bookseller by acquiring several companies. In France, the division purchased the Le Grand Livre du Mois book club and the country’s biggest independent bookselling chain, Librairies Privat. In the U.S., Direct Group acquired the country’s leading DVD specialty retailer Columbia House – the largest acquisition in the division’s history. The club businesses in the Eastern European growth markets showed dynamic growth.

Figures at a Glance (in € millions)

	2005	2004
Consolidatedrevenues	17,890	17,016
Operating EBIT by divisions Corporate/Consolidation Operating EBIT	1,743 (133) 1,610	1,522 (93) 1,429
Special items	61	318
EBIT (Earnings before interest and taxes)	1,671	1,747
Financial result	(386)	(312)
Income taxes	(244)	(263)
Net income	1,041	1,172
of which: Share of profit of Bertelsmann shareholders	880	1,032
of which: Minority interest	161	140

Investments

2,565

863

	At Dec 31, 2005	At Dec 31, 2004
Economic Debt	3,931	2,632
Employees (in absolute numbers)	88,516	76,266

Definition of Operating EBIT: Operating EBIT refers to earnings before interest, taxes and
special items.

About Bertelsmann AG

The media company Bertelsmann commands globally leading positions in the major markets. Its core business is the creation of first-class media content. Bertelsmann includes RTL Group, Europe’s No.1 in television and radio, as well as the world’s biggest book-publishing group, Random House, with more than 100 publishing imprints (Alfred A. Knopf, Bantam, Goldmann). Gruner + Jahr, the European No.1 in magazine publishing (Stern, Geo, Capital) and the BMG music division – comprised of the Sony BMG joint venture (Anastacia, Alicia Keys, Beyoncé, Dido, Usher) and BMG Music Publishing – also stand for creativity and powerful brands. The Arvato division bundles the group’s media services, which include the expanding units Arvato Logistics Services and Arvato Direct Services (distribution, service centers, customer relationship management), along with state-of-the-art printers, storage media production and comprehensive IT-services. Bertelsmann’s direct-to-customer businesses are bundled in Direct Group: book and music clubs with more than 35 million members all over the world.

For further questions, please contact:

Andreas Grafemeyer

Senior Vice President Media Relations

Phone: +49 – 52 41 – 80 24 66

andreas.grafemeyer@bertelsmann.de

Information posted on the Internet (www.bertelsmann.com):

• Press release and presentation charts for the Annual Press Conference
• Bertelsmann Annual Report 2005 for download (PDF)
• Bertelsmann Corporate Responsibility Report 2005 for download (PDF)
• Video recording of the Annual Press Conference
• Photos of all Executive Board members under Press / Photos
• Bios of all Executive Board members

Attachment

Name	Size
GJ_2005_engl.pdf	115 kB